India Money Market Outlook
Gilts seen down Mon as US ylds up post jobs data
This story was originally published at 19:07 IST on 5 October 2024
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NEW DELHI – Government bond prices are likely to fall, while overnight indexed swaps rates may rise on Monday, due to a sharp rise in US Treasury yields after Indian market hours on Friday. US yields rose as data showed a resilient labour market, wiping out hopes of a 50-basis-point rate cut by the US Federal Open Market Committee in November.
Data released by the Bureau of Labor Statistics showed that the non-farm payrolls were higher than expected, with a rise of 254,000, against estimates of 150,000. After the data was released, the yield on the US Treasury rose to 3.96% from 3.86% at 1700 IST Friday. Fed funds futures showed expectations of a 50-bps rate cut at the next FOMC slumped to nil, against 53.3% a week ago, according to the CME FedWatch tool. Odds are now stacked in favour of a modest 25-bps US rate cut, with a minuscule 2.6% chance of no rate cuts at all.
Traders may also take cues from the movement in crude oil prices and are sensitive to developments in the West Asia conflict between Iran and Israel, dealers said. Brent crude futures for December delivery approached $80 a barrel after a week of constant aggression in the region.
On Monday, the one-day call money rate may open near the RBI's repo rate due to demand for funds from banks early in the day to meet their reserve requirements.
GOVERNMENT BONDS
On Monday, a rise in US Treasury yields may weigh on gilt prices, following the US September employment report released after market hours Friday, dealers said. If the yield of the benchmark 10-year gilt reaches 6.85%, dealers expect traders to pick up bonds as that level is seen as lucrative.
The gilts market may see foreign fund inflows because of the inclusion of Indian bonds in JP Morgan's emerging market bond index after the weightage was increased to 4% in September. Any uptick in gilt yields may also prompt purchases by domestic banks, which will have to maintain larger buffers of liquid assets, such as government securities, due to an impending tightening of the guidelines on liquidity coverage ratio.
The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.76-6.86% on Monday. On Friday, the benchmark paper closed at INR 101.84 or 6.8339% yield.
OIS RATES
On Monday, a rise in US Treasury yields may push up OIS rates, following the US September employment report released post market hours Friday, dealers said.
On the domestic front, the market awaits the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Wednesday. Expectations of monetary policy easing in India are mixed due to the rise in crude oil prices, dealers said.
The swap rate in the one-year segment is seen at 6.40-6.58% and in the five-year segment at 6.10-6.25%. On Friday, the one-year swap rate closed at 6.45% and the five-year at 6.14%.
CALL
On Monday, the one-day call money rate may open near the RBI's repo rate of 6.50% due to early demand for funds from banks to meet reserve requirement. Outflows for tax deducted at source and excise duty will likely drain banking system liquidity by about INR 500 billion by Tuesday.
During the day, the call rate is seen in a range of 6.00-6.60%. On Saturday, the two-day call rate ended at 5.00%.
RBI AUCTION
--Nil
LIQUIDITY
--Total net inflows of INR 8.68 billion. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repos.
* Inflows
--INR 6.86 billion as coupon on state bonds on Sunday
--INR 37.04 billion as coupon on 6.45%, 2029 gilt on Monday
--INR 23.32 billion as coupon on state bonds on Monday
--INR 5.00 billion as redemption of state bonds on Monday
* Outflows
--INR 390.00 billion as payment for gilt auction on Monday
End
US$1 = INR 83.97
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Aaryan Khanna
Edited by Manisha Baxla
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